Ways to Avoid a Foreclosure in Jupiter Florida

by Rodney Forbes on September 30, 2012

West Palm Beach Short Sale RealtorFor homeowners that dealing with a financial crisis, essentially any alternative to foreclosure is gladly received. Nonetheless, choosing the suited foreclosure alternative may be challenging. There are a huge number of factors that can affect a homeowner’s decision: their short term financial circumstance, their long term income anticipation, their assets, interest rates, the internal policies of their lender, the present as well as future market value of their home, even ethical and moral values may come to play.

To make things obscure, a great deal of the advice on foreclosure alternatives comes from self-interested parties with a “dog in the race”, so to speak. These may be lenders who are advantageous from loan modification, 3rd parties that make homeowners pay for guidance through strategic default, and individuals acclaiming themselves as experts in short sales or foreclosure avoidance, who in reality may have little experience or training on the subject matter.

With so many different concepts to consider and so much conflicting information out there, and such an important decision to be made, how can a homeowner abstain from a foreclosure and pick the best foreclosure alternative for their situation? Here below, we take a look at the pros and cons of a few of the major alternatives to foreclosure.

How to Avoid Foreclosure – Alternatives to Foreclosure
Loan Modifications

Loan modifications are often proclaimed as a technique to avoiding foreclosure. Homeowners facing with potential foreclosure are often recommended to contact their lenders and work out a loan modification, where the lender alters the terms of the mortgage in order to help the homeowner remain in their home. As for the lender, it can be reasonable to accept smaller payments over a longer amortization period, temporarily freezing interest rates, or delayed payment rather than accept the losses they would face with a foreclosure, particularly where the property value of the home has severely declined.

West Palm Beach Short Sale RealtorWhile loan modification programs may be beneficial for the lender, for most aggrieved homeowners, loan modifications are a short solution that benefits the lender as opposed to the homeowner. If the property value of the borrower’s home has decreased to a point where it is significantly lower than the value of the mortgage, the homeowner will still be making Realtor mortgage payments for a home worth significantly less than what they are paying, all the while incurring further debt. If the homeowner as well dealing with unemployment or a significantly reduced income, then it is not likely that they will be capable of continuing to make mortgage payments in the long run. Thus, a loan modification may only prolong the inevitable.

On the other hand, loan modifications may be appropriate in other situations where the reason being for the homeowner’s financial trouble is a short term one, verses the long term financial problems that come with sharply declining property values and significantly reduced income.

Short Sale

When facing foreclosure, a short sale is where the homeowner gets approval from the lender to sell the home for less than the value of their debt. In some states, non-recourse laws stop the lender from legally pursuing a judgment against the borrower for the debt remaining after the secured property has been purchased, meaning the homeowner is excused. In those states without non-recourse laws, the homeowner can classify a short sale with the help of a short sale specialist and negotiate a written agreement from their lending institution forfeiting their right to sue for the deficiency (the remaining debt owed by the homeowner after the home is sold). In return, the lender receives the proceeds of sale of the home without the legal and administrative costs associated with the foreclosure process.

The downside to a short sale is that if you are in a recourse state and you still have significant assets, you will most likely still be personally responsible for the deficiency when the home sells for less than the value of the outstanding debt. Adding to this, there are few Realtors with the experience mandatory to support the complexities of a short sale. The homeowner must be very diligent in screening Realtors in order to emerge from a short sale with a positive outcome. However, with an experienced short sale specialist, a short sale may authorize the homeowner to salvage their credit, have their debt forgiven, and also avoid the public humiliation and spectacle of a foreclosure.

Deed In Lieu Of Foreclosure

West Palm Beach Short Sale RealtorThere is one more foreclosure alternative to be aware of, the deed in lieu of foreclosure. A deed in lieu of foreclosure is similar in concept to a short sale, except on behalf of selling the home, you hand back the home to the lender and in exchange, the lender will terminate foreclosure proceedings or amend not to decree foreclosure proceedings. Like with a short sale, it is important to negotiate a forgiveness of the deficiency if you are in a recourse state, or you may still be liable for the deficiency after the bank receives the deed.

The downside to a deed in lieu of foreclosure is that it can be rather challenging to get the lender to admit a deed in lieu. It is significantly easier to get a lender to agree to a short sale. As a matter of fact, many lenders will require you to put your home on the market for a certain timeframe before they will take into consideration a deed in lieu of foreclosure. With a short sale, you come to the lender with an offer and a buyer ready to pay, while with a deed in lieu of foreclosure you’re asking the lender to accept the deed to the property.

Which Foreclosure Alternative Is Right For You?

Even armed with information regarding ways you can prevent foreclosure and choose a preferable alternative to foreclosure, it can be confusing to know which option suites best for your particular case.

Generally speaking, a loan modification is the best resolution when the cause of the missed mortgage payments or financial difficulty is simply a short term cash flow problem. Perhaps, this could be medical emergency, sudden major repairs to the property, a car accident, or another long term financial crisis. Unfortunately for most homeowners, the cause of their distress isn’t a short term cash flow problem. If the root of the issue is because of a significantly reduced income or a sudden decline in property values, then a loan modification will generally be inadequate as a long term solution. In fact, it may cost the homeowner more in the long run, as they struggle to keep up with loan payments, only to inevitably end up back where they started seeking other options to foreclosure.

West Palm Beach Short Sale RealtorThe deed in lieu of foreclosure offers a number of benefits over loan modification. It allows the homeowner to potentially get a fresh start while avoiding many of the psychological and financial consequences of a foreclosure. However, it can be difficult to obtain a deed in lieu as lenders typically would prefer cash over the deed. This leaves the short sale as the best option to foreclosure where the cause of the homeowner’s financial distress is due to unemployment, significantly reduced income, or where the value of the property has dropped significantly. As mentioned previously, if you decide to take advantage of a short sale as an alternative to foreclosure, it is extremely important to find an experienced short sale Realtor who can handle the complexities of a short sale transaction. But with the proper representation, a short sale could be the alternative to foreclosure you’re looking for.

Rodney Forbes is a Realtor® and registered broker with Forbes Realty of South Florida, based in West Palm Beach Florida. Rodney and his team work in Palm Beach, Broward, Martin and St. Lucie Counties. As a recognized expert on short sales, Rodney has been featured on radio and national web conferences for agents. Rodney has also authored the book “Should I Short Sale My Home?”

Forbes Realty of South Florida also specializes in REO asset disposition. Rodney works with several banks and asset managers in the Palm Beach County area. Rodney is the main author for the popular real estate blog South Florida Real Estate Report. You can find a wealth of information regarding bank foreclosures, short sales, real estate news and local real estate trends.

For more information, please call Rodney at 561-337-4810 or email Rodney@ForbesRealtyOnline.com


Leave a Comment

Previous post:

Next post: